$1 Billion In Pledges Sought For Exec Life

November 02, 1991|By Laurie Cohen.

The life insurance industry is expected to come up with $1 billion in pledges to back a bid for Executive Life Insurance Co. by the nation`s life insurance guaranty funds, industry sources said Friday.

The pledges will be used to satisfy conditions set by John Garamendi, the California insurance commissioner who last week conditionally approved the National Organization of Life and Health Insurance Guaranty Associations` bid for the failed Los Angeles-based insurer.

Garamendi set a Monday deadline for the guaranty group to respond to a number of financial and legal questions about the plan.

Even if the guaranty group collects the pledges, it`s not clear that it will meet California`s conditions. Garamendi has said that, if the group fails, he would recommend a bid by French investor group or a proposal by a group led by the San Francisco investment firm of Hellman & Friedman and including Chicago`s Zell/Chilmark fund.

Industry officials said many of the top 30 U.S. life insurers have agreed to a request to commit 1 to 3 percent of their capital to support the guaranty group`s bid. The companies would be asked to make good on their pledges if the nation`s guaranty funds default on their agreement to provide capital to a new insurance concern that would assume Executive Life`s obligations.

J.P. Morgan & Co., an adviser to the guaranty group, asked the companies in a letter sent last Monday to make the pledges. Sources said Morgan, which declined to comment, also has agreed to provide what is essentially a letter of credit.

By late Friday afternoon, officials at some big insurance companies said they still hadn`t reached a final decision. But Tom Sutton, chief executive of Newport Beach, Calif.-based Pacific Mutual Life Insurance Co., said he is

``extremely confident`` that adequate pledges would be amassed by Monday.

``We view the $1 billion facility as unnecessary, because the guaranty associations will take care of policyholders anyway,`` said Sutton, who is spearheading the industry effort as head of California`s biggest life insurer. ``The whole issue is credibility.``

The state associations have pledged about $950 million to the guaranty group plan. But Garamendi apparently wants more direct participation from the industry because of concerns about the web of state laws governing the various associations.

The nation`s biggest life insurer, Prudential Insurance Co. of America, said it is ``prepared to fully participate`` with a pledge of $240 million, or 3 percent of its capital. No. 2 Metropolitan Life Insurance Co., said its level of participation isn`t set.

Many in the industry view the guaranty group plan as a way to reduce their costs to bail out Executive Life policyholders. Life insurers finance the state guaranty associations, which are required in most cases to make whole policyholders of insolvent insurers for cash values of $100,000 or less. Under the guaranty group plan, the industry`s contribution may be lower because, unlike other bidders, it doesn`t need to turn a profit on the deal.

In addition, by taking control of Executive Life`s massive junk-bond portfolio and unloading it gradually at a profit, the group hopes to reduce its own outlays.